GOVERNMENT has set up a US$70 million revolving fund available to Zimbabwean banks for on-lending to companies at cheaper rates, a move that would provide long-term money local companies have been craving for.

Local banks are offering money on a short-term basis and on punitive rates that discourage borrowing meaning that companies would not have the capital to retool their operations after a decade of neglect attributed to the economic crisis.

Local banks do not have the money to lend out on a long-term basis citing the liquidity crunch.
Under the Zimbabwe Economic Revival Fund, banks can only lend money to companies at an interest rate of Libor (London Interbank Offered Rate) plus 5% to become the cheapest money available on the market and the repayment period is in excess of six months.

Libor is a daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market

“We are trying to provide longer duration money at cheaper rates,” Finance minister Tendai Biti said in his mid-term policy review last week.
He added that unlike other facilities government would ensure that there is proportional distribution of the money across regions.
The African Export-Import Bank (Afreximbank) would provide US$50 million to the facility with government chipping in with US$20 million, Biti said.
Afreximbank are guarantors to the US$50 million Diaspora bond which would be floated this year to raise money from millions of Zimbabweans resident in the Diaspora.

At least three million Zimbabweans are living in the Diaspora having fled the economic crisis of the past decade.
Biti said the finer details would be announced in the next few weeks.

The bond has been on the cards since last year and it would run for three years.
Analysts say the US$70 million fund provides a lifeline to companies and helps in stimulating production ultimately leading to an increase in revenue for government from taxes.

Capacity utilisation is hovering around 40% and 50% for most companies due to antiquated equipment, capital constraints and power outages.

BY NDAMU SANDU

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